Dear Momentum Stocks Weekly Subscriber,

The market continued its late-July pullback last week, and the indices finished near multi-month lows. However, the five-session slide ended on Tuesday, as the bulls rebounded to push resistance and prior support.

The rally lasted into Thursday, when the market recovered the second levels of resistance. Trading was choppy following the latest gross domestic product (GDP) numbers, and the slightly mixed close set the stage for a Friday showdown that ended mixed, as well.

The Dow fell 56 points, or 0.3%, to finish at 17,689 on Friday. The blue-chips opened higher and were choppy before fading below 17,700 to 17,671. The rebound to 17,783 mid-day fell short of resistance at 17,800 and the 200-day moving average. There are additional hurdles at 17,900-17,950 and the 50- and 100-day moving averages, but bullish momentum can’t be trusted until 18,000-18,100 is cleared. There is risk to 17,600-17,350 on continued weakness.

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The S&P 500 slipped 4 points, or 0.2%, to close at 2,103. The index made a push to short-term resistance at 2,115-2,125 but struggled to hold this zone. A move above the latter keeps bullish hopes of fresh all-time highs north of 2,135 alive. Support is at 2,100-2,095 and the 50- and 100-day moving averages. A drop below 2,090 could lead to a retest of 2,075-2,070 and the 200-day moving average.

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The Nasdaq dipped by half of a point, or 0.01%, to settle at 5,128. Tech traded in positive territory for much of Friday’s session and made a push past resistance at 5,150. There is additional overhead resistance at 5,175-5,200, but the late-day fade to 5,122 looked troublesome. Support is at 5,100-5,075 and the 50-day moving average if 5,125 fails to hold. Additional help is at 5,050-5,025 and the 100-day moving average.

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The Russell 2000 gained 6 points, or 0.5%, to end at 1,238. The small-caps traded in positive territory throughout the session to reach a peak of 1,244. The bulls fell shy of clearing 1,250 and the 100-day moving average, and they were not able to hold the 1,240 level. This keeps risk open to 1,225-1,215 and the 200-day moving average. A close below this level could lead to 1,200 on continued selling pressure.

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The S&P 500 Volatility Index ($VIX, 12.12, down 0.01) stayed in a tight range on Friday, with the bears pushing 12.50 while the bulls tested 11.50. The high of 12.63 keeps risk in play up to 13.50-15. The VIX tested a low of 11.82 but needs to get below 11.50 to confirm that new highs are in store.

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The bulls turned in a solid month for July despite elevated volatility, as most of the major indices finished higher. The Dow added 70 points, or 0.45%, and the S&P 500 gained over 40 points, or 2%. The Nasdaq surged 141 points, or 2.9%, while the Russell 2000 gave back 15 points, or 1.2%. The small-caps were weak and remain a concern heading into August, which is historically a poor month for the market as well.

As you can see from the chart below, the bulls have won four of the seven months on all four of the aforementioned indices. Year-to-date, the Dow is lower by 133 points, or 0.75%, while the S&P 500 has added 45 points, or 2.2%. The Nasdaq has gained 392 points, or 8.3%, and the Russell 2000 has advanced 34 points, or 2.9%.

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The Dow has made seven intraday and six all-time closing highs this year. The intraday high of 18,351.36 and closing high of 18,312.39 tripped on May 19.

The S&P 500 has set 12 intraday and 10 all-time closing highs this year. The intraday all-time high of 2,134.72 was reached on May 20, and the closing high of 2,130.82 was triggered on May 21.

The Nasdaq has set 22 intraday and 21 all-time closing highs this year. The intraday all-time high of 5,231.94 and the closing high of 5,218.86 were touched on July 20.

The Russell 2000 has set 18 intraday and 16 all-time closing highs this year. The intraday all-time high of 1,296 and the closing high of 1,295.80 were triggered on June 23.

As far as the technical picture, the only troublesome chart, really, is the Dow. The mini “death cross” of the 50-day moving average crossing below the 100-day moving average is still in play. The aforementioned chart on the S&P 500 is showing a downward-sloping 50-day moving average, which is something that bears watching if it crosses below the 100-day moving average as well.

The technical setup on the Nasdaq shows a slightly upward bias with the 50- and 100-day moving averages, but it is close to leveling out. The Russell 2000 is showing a slightly downward-sloping 50-day moving average, with the 100-day moving average already flat lining.

The damage on the Dow has been impacted by the weakness in the Dow Transports. The transports held their July lows and the 8,000 level before surging near 8,400 and past the 50-day moving average last week. This was a bullish development, as a rebound in the transports might help stabilize the Dow. However, if the 8,300 level fails to hold this week, it would further deepen my concerns for the blue-chips.

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The financial stocks started to pull back mid-month and remain in focus, as they still hold the keys to a continued rally. The Financial Select ETF (XLF, $25.21, down $0.08) tested a high of $25.62 on July 23 and is still above its 50-day moving average. A move above $25.40 will likely keep fresh highs in play. A drop below $25-$24.75 and the 50-day moving average would be a bearish development.

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The Dow Monday/Friday closes continue to favor the bears. The pullback last Monday was the fifth in the past eight Monday sessions.

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Friday’s drop in the Dow was the third-straight down day. Additionally, the bears have won seven of the past 10 Friday sessions.

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There have been seven down Monday/Friday closes this year. More importantly, the last five down M/F closes have come since mid-May, with two of the past four hitting in July.

I have mentioned that negative Monday/Friday closes can signal a pending pullback, selloff or correction. It shows that Wall Street is leery of holding stocks over the weekend until they open the following week. This also means that money is moving out of the market.

Up Monday/Friday closes can signal market strength, while mixed M/F closes often lead to trading ranges. This was one of the main reasons why I was slightly cautious about adding new bullish positions last month.

The current environment feels shaky, but the six-month trading ranges have been holding up. This has also cautioned me from going short, which shows that this truly is a stock picker’s market. However, by doing the homework, we have been able to trade in and out of these ranges with the help of the VIX and the other technical indicators I follow.

Timing a market top is never easy, but the technical clues I follow have been pin-point accurate all year. This has allowed me to spot tremendous trading opportunities, and we are in a perfect position to play the next short-term trend.

Wall Street might be in the summer doldrums, but I intend to keep my hot streak going heading into August.  It was a tremendous July with the Momentum Stocks Weekly track record going 5-0.  Although the gains were limited to a double and singles, the current environment is setting up nicely for us to use some longer-term option trades that could return triple-digits.

I haven’t opened too many option trades this year because as they carry more risk than stock trading.  When trading directional options, you have to be right within a certain amount of time, which makes the game a little harder.  If not, the premium in the options can evaporate quickly with the trade going against you.

My Watch List is exploding with fresh ideas, and I expect this month to be just as busy and volatile as last month.  We just have to let the market come to us and watch for the clues to go long or short.

From desk to press, futures look like this: Dow (+14); S&P 500 (+0); Nasdaq 100 (+0.3); Russell (-1).

Chapter 1. Momentum Stocks Weekly Play List

All prices given in this update are current as of July 31, 2015. I hereby disclose that I will be participating in the following trade(s).

The Momentum Stocks Weekly Closed Trade Track Record for 2015 is 25-0, for a 100% win rate (142-17, or 89% win rate, overall since the start of 2011)

View the entire list of open and closed trades by clicking here.

 

Rapid7 (RPD, $22.98, down $0.87)

Original Entry Price: $24.35 (7/28/2015)

Lowered Price from Selling Options: N/A

Exit Target: $27.00-$30.00

Return: -6%

Stop Target: $20.00 (Stop Limit)

Action:  Make the Stop Target at $20 a Stop Limit order in case fresh lows on this recent IPO come into play.

Short-term support is at $22.  A close below this level could lead to $20 and possible an early exit.  Resistance is at $24.

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Ohr Pharmaceutical (OHRP, $3.07, up $0.01)

Original Entry Price: $3.16 (7/28/2015)

Lowered Price from Selling Options: N/A

Exit Target: $6.00+

Return: -3%

Stop Target: $1.00

Action:  Resistance is at $3.25 followed by $3.50 and the 100-day moving average.  Support is at $2.90-$2.80 and the 50-day moving average if $3 fails to hold.

You can read my detailed update on OHRP from the July 30 Issue.

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Limelight Networks (LLNW, $3.77, up $0.18)

Original Entry Price: $4.03 (7/9/2015)

Lowered Price from Selling Options: None

Exit Target: $5.00-$6.00

Return: -6%

Stop Target: $3.00

Action:  Resistance is at $3.90-$4 and the 100-day moving average.  Support is at $3.50 followed by $3.35-$3.25 and the 200-day moving average.

I have a Price Target of $5-$6 over the next six to 12 months.  The company received a takeover offer north of $6 last summer.  I’m expecting another takeover attempt at some point this year, or next, as the content delivery market (CDN) remains hot.  I have mentioned Apple (AAPL) as a possible suitor.

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Rave Restaurant Group (RAVE, $12.48, up $0.06)

Original Entry Price: $13.92 (7/9/2015)

Lowered Price from Selling Options: N/A

Exit Target: $20.00

Return: -10%

Stop Target: $10.00

Action:  Resistance at $12.75 and the 50-day moving average.  Support at $12-$11.50 following the recent price swings and last week’s low of $11.51.  There is additional help at $11.25 and the 200-day moving average on a close below $11.50.

You can read my recent earnings update on RAVE and why it remains my No. 1 stock pick from the June 29 Issue.

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Rigel Pharmaceuticals (RIGL, $2.98, up $0.15)

Original Entry Price: $3.51 (6/2/2015)

Lowered Price from Selling Options: N/A

Exit Target: $4.00-$5.00

Return: -15%

Stop Target: $2.00

Action:  Support is at $2.90 and the 200-moving average with additional risk to $2.75-$2.70.  Resistance is at $3 followed by $3.25 and the 50-day moving average.

You can read my detailed write-up from the June 8 Issue here.

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Dot Hill Systems (HILL, $6.32, up $0.11)

Original Entry Price: $7.10 (5/21/2015)

Lowered Price from Selling Options: N/A

Exit Target: $14.00-$15.00

Return: -11%

Stop Target: $5.00

Action:  Shares closed on their 100-day moving average on Friday.  Additional resistance is at $6.50-$6.75 and the 50-day moving average.  Support is at $6 on a drop back below $6.25.

Earnings are due out this Thursday, Aug. 6.  Wall Street is looking for a profit of $0.06 a share on revenue of $60.64 million.

You can read my full write-up on HILL in the May 26 Issue.

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Flex (FLEX, $11.01, up $0.01)

Original Entry Price: $12.55 (5/19/2015)

Lowered Price from Selling Options: N/A

Exit Target: $15.00+

Return: -12%

Stop Target: $10.00

Action: Short-term resistance at $11 has been cleared and has held for two-straight sessions.  Additional hurdles lie at $11.40-$11.50 and the 50/200-day moving averages.  Support is at $10.80-$10.75 followed by $10.50.

You can read my detailed write-up on Flex in the July 30 Issue.

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Psychemedics (PMD, $12.02, up $0.12)

Original Entry Price: $15.67 (5/5/2015)

Lowered Price from Selling Options and dividends: No options available

Exit Target: $15.75 (Limit Order)

Return: -23%

Stop Target: $7.75 (Stop Limit)

Dividend Yield: 4.9%

Action:  Support is at $11.50-$11.  Resistance is at $12-$12.50.

The company reported a profit of 5 cents a share on revenue of $7 million last week.  A dividend payment should be coming this month.

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Huttig Building Products (HBP, $3.21, down $0.04)

Original Entry Price: $4 (8/13/2014)

Lowered Price from Selling Options: No options available

Exit Target: $6.00+

Return: -20%

Stop Target: $2.00 (Stop Limit)

Action:  Resistance is at $3.20-$3.25 and the 50-, 100-, and 200-day moving averages.  A move above the latter would be bullish.  Support is at $3.10-$3.

The company posted a profit of $0.20 a share on revenue of $175 million last week.  Shares tested a high of $3.45 on the news but the breakout failed to hold.  I still like this trade for the longer-term as activity in the homebuilders is picking up.

HPB73115

Rambus (RMBS, $13.09, down $0.04)

Original Entry Price: $17.83 (11/14/2011)

Lowered Price from Selling Options: $16.38

Exit Target: $15.00+

Return: -20%

Stop Target: $9.00

Action:  Support is at $13-$12.75.  A close below the latter could lead to $12.50 and another retest of the 200-day moving average.  Resistance is at $13.25 followed by $13.50-$13.75 and the 100-day moving average.

We previously sold to open (wrote) the RMBS December 20 calls for $1.45 on Nov. 14, 2011 to reduce the cost basis to $16.38.
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Trades on Hold (7): These are trades that are still open in the portfolio but are down from the original recommended price. These trades are on “hold” and are not a buy until I bring back coverage of the stock. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when a trade closes. I do not recommend adding to these positions or opening new positions.

Discovery Laboratories (DSCO, March 2015) — Continue to hold.

AKS Steel Holding (AKS, May 2011) — We sold to open (wrote) the AKS September 6 calls (AKS150918C00006000) on 4/30/2015 for 40 cents. Continue to hold.

DryShips (DRYS, January 2011) — We sold to open (wrote) the DRYS September 1 calls (DRYS150918C00001000) on 4/30/2015 for 5 cents. Continue to hold.

Bebe Stores (BEBE, February 2012) — We sold to open (wrote) the BEBE September 4 calls (BEBE150918C00004000) on 4/30/2015 for 35 cents. Continue to hold.

Vivus (VVUS, July 2012) — We sold to open (wrote) the VVUS September 4 calls (VVUS150918C00004000) on 4/30/2015 for 10 cents. Continue to hold.

Zynga (ZNGA, March 2014) — We sold to open (wrote) the ZNGA September 3 calls (ZNGA150918C00003000) on 4/30/2015 for 16 cents. Continue to hold.

Galena Biopharma (GALE, February 2014) — We sold to open (wrote) the GALE October 2 calls (GALE151016C00002000) on 4/30/2015 for 15 cents. Continue to hold.

Trade on!

Signed

Rick Rouse
Editor
Momentum Stocks Weekly